1. 1 Organizational Theory Organizational strategy is a specific pattern of decisions and actions that managers take to use core competencies to achieve a competitive advantage and outperform competitors. Core competencies are skills and abilities in value creation activities that allow a company to outperform its rivals.

2. 2 Organizational Theory Table 8-1 Low-Cost and Differentiation Advantages Resulting from Functional-Level Strategy Value-creatingSource of low-costSource of differentiation functionadvantageadvantage Manufacturing Development of skills in Increase in product flexible manufacturing technology quality and reliability Human resource Reduction of turnover Hiring of highly skilled management and absenteeism personnel Development of innovative training programs Materials Use of just-in-time inventory Use of company reputation management system/ computerized warehousing and long-term relationships with suppliers and customers Development of long-term to provide high-quality inputs relationships with suppliers and and efficient distribution and customers disposal of outputs

3. 3 Organizational Theory Table 8-1 Low-Cost and Differentiation Advantages Resulting from Functional-Level Strategy (continued) Value-creatingSource of low-costSource of differentiation functionadvantageadvantage Sales and marketing Increased demand and lower Targeting of customer groups production costs Tailoring products to customers Promoting brand names Research and Improved efficiency of Creation of new products development manufacturing technology Improvement of existing products

4. 4 FIGURE 8-3 Structural Characteristics Associated with the Development of Core Competencies in Production, Sales, and Research Development. ManufacturingSalesR & D Mechanistic structure Organic structure ManufacturingSalesR & D Tall organization Flat organization ManufacturingSalesR & D Centralized decision making Decentralized decision making ManufacturingSalesR & D Standardization Mutual adjustment

5. 5 Organizational Theory Once an organization has chosen its domain, it can use either of the following: Low-cost business-level strategy — produces low-priced goods and services for all customer groups. Differentiation business-level strategy — produces high-priced, quality products aimed at particular market segments.

6. 6 Organizational Theory One type of business-level strategy is the focus strategy. Focus strategy involves specialization in one segment of the market and focusing all of the organization’s resources on that segment.

7. 7 FIGURE 8-5 Characteristics of Organizational Structure Associated with Business-Level Differentiation and Low-Cost Strategies Matrix structure Product team structure Product, market, or geographic structure Functional structure Differentiation StrategyLow-Cost Strategy Complex structureSimple structure Decentralized decision makingCentralized decision making High differentiationLow differentiation High integration Low integration Organic structureMechanistic structure

8. 8 FIGURE 8-6 Corporate-Level Strategies for Entertaining New Domains Input Domains Related Domains Output Domains Unrelated Domains Related diversification Backward vertical integration Unrelated diversification Forward vertical integration Core Domain

9. 9 Organizational Theory Organizations pursuing a strategy of unrelated diversification are likely to use a conglomerate structure. Conglomerate structure — a structure in which each business is placed in a self-contained division and there is no contact between divisions.

10. 10 FIGURE 8-8 Conglomerate Structure A Division B C D E F G H I Corporate Headquarters Staff CEO

11. 11

12. 12

13. 13 Organizational Theory Multidomestic Strategy Pressures for LocalPressures for Global ResponsivenessIntegration HIGHLOW Manufacturing, R&D, marketing abroad Achieve a differentiation advantage Bureaucratic costs are lowest

14. 14 Organizational Theory International Strategy Pressures for LocalPressures for Global ResponsivenessIntegrationLOW Manufacturing abroad R&D and marketing at home Bureaucratic costs are low

15. 15 Organizational Theory Global Strategy Pressures for LocalPressures for Global ResponsivenessIntegration LOWHIGH Manufacturing at a few low-cost locations R&D and marketing at home Bureaucratic costs are high

16. 16 Organizational Theory Transnational Strategy Pressures for LocalPressures for Global ResponsivenessIntegrationHIGH Manufacturing, R&D, marketing abroad, BUT Emphasis on global learning / cost reduction Bureaucratic costs are highest

17. 17 Organizational Theory Vertical differentiation choices Levels in the hierarchy Low Need for CoordinationHigh MultidomesticInternationalGlobalTransnational StrategyStrategyStrategy Strategy Relatively RelativelyRelativelyRelatively flattalltallflat Low Bureaucratic CostsHigh

18. 18 Organizational Theory Vertical differentiation choices Centralization of authority Low Need for CoordinationHigh MultidomesticInternationalGlobalTransnational StrategyStrategyStrategy Strategy DecentralizedCentralized /CentralizedSimultaneous DecentralizedCentralized & Decentralized Low Bureaucratic CostsHigh

19. 19 Organization Theory Horizontal differentiation Type of Structure Low Need for CoordinationHigh MultidomesticInternationalGlobalTransnational StrategyStrategyStrategy Strategy GlobalGlobalGlobalGlobal matrix geographicproduct groupproduct group structurestructurestructure Low Bureaucratic CostsHigh

20. 20 Organizational Theory Global geographic structure — a structure in which foreign divisions are created in every country or region in which an organization operates to replicate all its domestic value creation activities.

21. 21 FIGURE 8-9 Global Geographic Structure

22. 22 Organizational Theory Global product group structure — a structure in which product group headquarters coordinates the activities of the domestic and foreign divisions within each product group.

23. 23 FIGURE 8-10 Global Product Group Structure Worldwide Chemicals Product Group Headquarters Worldwide Consumer Goods Product Headquarters Corporate Headquarters (located in the United States) Worldwide Automotive Product Group Headquarters Canadian Division British Division United States Division French Division Japanese Division Product groups Domestic and foreign divisions

24. 24 Organizational Theory Global matrix structure — a structure that coordinates organizational activities and resources along two dimensions: Product groups and World areas

25. 25 FIGURE 8-11 Global Matrix Structure Canadian Division Individual business division Automobile product group Chemicals product group Consumer goods product group North American Area United States Division Mexican Division European Area British Division French Division Pacific Area Japanese Division Taiwan Division

26. 26 “GM Unveils Overhaul of Europe Operations”  General Motors unveiled much-anticipated overhaul of European operations designed to streamline Co by bringing units Adam Opel, Vauxhall Motors, and Saab under single mngt structure  Intended to speed up decision making and increase efficiency  Centralizing finance, design and engineering, buying, manufacturing, sales and marketing  “Asking all of our European ees to recalibrate themselves to a mindset of working for General Motors overall, instead of an individual brand or country operation”  Source: Wall Street Journal, 6/18/04  See also “Reversing 80 Years of History…”

27. “International Isn’t Just IBM’s First Name”  Lotus Symphony is package of PC software applications  Work on new version started in July 2007  Teams in Beijing (lead); Austin, TX; Raleigh, NC; Boeblingen, Germany contributing  One of major challenges is difficulty of communicating via e-mail or videoconferencing when programmers have never met one another  Trust is big problem  IBM trying to bridge gap w/ software that borrows heavily from social networking  New program called Beehive is essentially corporate version of Facebook  Ees create profiles and post photos, lists of interests, etc.  Source: Business Week, 1/28/08 27